Divorce and Unsecured Debt Responsibility

Knowing the consequences of unsecured debt responsibility after divorce is an important consideration in negotiating and drafting your divorce agreement. This discussion from the financial analyst highlights what needs to be considered.

Rayne's Question: I'm going through a divorce. We have two loans together; one which was used to pay off a credit card he maxed out and then stopped making payments on. He wants to keep everything that was purchased on that card. I don't have a problem with this, BUT I want him to be responsible for the loan payments. However, his credit is not good enough for him to refinance it in his name alone. What are my options?

Timothy's Answer: When couples have debt of any kind, particularly when the debt is jointly held (in both of your names), it becomes very important you and your soon to be ex-husband have a clear agreement as to who will be responsible for repaying the debt. I would define a clear agreement as being a written agreement. If you're using an attorney, he or she will put language in your separation agreement or divorce decree detailing this. This agreement should include the account numbers, payment terms, and instructions concerning what will happen if payments aren't made according the agreement.

If you and your husband took out loans(s) to pay off high interest credit card debt and the items purchased were for his personal use or benefit, then he should be responsible enough to pay his debt. The fact you are getting a divorce doesn't relinquish his obligation to pay this, but the fact that the loan is also in your name doesn't relinquish your obligation either.

While you did not mention the type of loans the two of you have, generally speaking you cannot remove one party from a debt obligation unless the debt is re-structured in some way, such as with a home equity loan. The fact your husband has a sub-par credit rating should be reason enough for him to want to begin reestablishing and improving his credit. The first way to do this is to make every payment on time. You both have a mutual stake in making sure that your good credit is maintained and it would not be in the best interest of either of you do anything to damage it. If one of you doesn't meet your debt obligations, you will both suffer equally and the effects can last a lifetime.

If you feel your husband cannot or will not be a responsible adult and pay his debt obligations, I would suggest you seek outside help to draft an agreement outlining each other's responsibilities.

If you are not currently working with a lawyer, another option is to consider using mediation. During mediation, both spouses voluntarily meet to discuss the various issues which brought you there. If both of you can reach an agreement, the mediators can help you put that agreement into writing. Any agreement reached carries the same weight as if ordered by the court. One of the main benefits of mediation is that any agreement which is reached is your own and not dictated to you by someone else. People tend to honor agreements they make themselves. - Timothy